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China’s Rate Decision Won't Hurt Markets: Economist

Markets struggled on Friday amid China’s surprise tightening of its lending standards and concerns about the global recovery. How should investors position their portfolios? Joseph LaVorgna, chief U.S. economist at Deutsche Bank and CNBC contributor, and Brent McQuiston, vice president at Wealth Trust-Arizona, discussed their insights.

“All the worries that we see everyday, those haven’t gone away and aren’t going to get better anytime soon,” McQuiston told CNBC.

McQuiston said alternative investments are an attractive area for investors who are avoiding equities.

“There’s no obvious place in 2010 where we can say we’re going to make a lot of money; that’s why we maintain our equity exposure fairly low,” he said.

“Alternatives gives us a chance of growth outside of traditional markets.”

Managed futures gives exposure to pricing trends on currencies, commodities, and interest rates, suggested McQuiston. He also recommended commercial real estate for investors.

(Counterpoint from Diana Olick: Congressional Panel "Deeply Concerned" over Commercial Real Estate)

In the meantime, LaVorgna said China’s rate decision will not be a big issue for the markets in the long run.

“What central banks are doing is removing excess liquidity and accommodation in order to prolong growth, not slowing it, so I don’t think in the grand scheme of things, this will be a big issue,” he said.

“We’ll get our normal 7 to 10 percent correction in the U.S. as we basically have, and eventually we’ll see higher prices.”

Meanwhile, LaVorgna expects more volatility in the range of 1,000 to 1,100 on the S&P.

“Investors are just worried because they’ve heard how weak the economy is, but I would argue that on balance, our numbers are pretty good,” he said.

“After all, we grew 4 percent in the second half of last year, but I think it’s not going to be until payrolls turn positive that people become more upbeat and you’ll see the sentiment gauges change," Lavorgna concluded.

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Disclosures:

No immediate information was available for LaVorgna or McQuiston.

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